Mortgage lending up by 7% in July

Gross mortgage lending increased by 7% in July to hit its highest monthly figure in almost six years, but mortgage lenders said pressures on budgets could start to dampen housing market activity.

Figures from the Council of Mortgage Lenders (CML) showed that a total of £19.1bn was advanced to borrowers during the month, 15% higher than the £16.7bn recorded in June 2013 and the highest figure since August 2008.

The pick-up in lending follows a slowdown in the wake of the mortgage market review in April, which brought in new rules on affordability tests for borrowers and forced lenders to “stress test” applicants to ensure that they could still meet repayments if interest rates rise.

The CML said activity had “remained robust” despite the changes, but warned the market still faced “headwinds”.

Recent data from surveyors and the property website Rightmove suggested the market has started cooling in recent weeks, as more homes have been put up for sale and the supply-demand balance has shifted in favour of buyers.

Some estate agents have also warned that rapidly rising prices in London and the south-east have put homes out of reach of many would-be buyers.

The CML’s market and data analyst, Caroline Offord, said this could have an impact on future activity.

“Mortgage activity seems to have remained robust following the regulatory changes but the eventual impact of these remains uncertain,” she said.

“Property transactions in the first half of the year showed a 25% increase compared to the same period a year ago but, as set out in our recent market forecast update, we expect that intensifying affordability pressures could start to dampen this upwards trend.”

Offord added: “Economic conditions have strengthened but while the Bank of England has signalled an improved economic outlook since May, headwinds remain and the message about future rate rises being measured and gradual remains unchanged.”

The CML’s breakdown of mortgage lending in June showed that borrowing was being driven by homebuyers, and that remortgage activity was low, despite suggestions that interest rates might rise in the next year.

Broker the Mortgage Advice Bureau, reporting a surge in the number of homeowners switching to a new lender and a slowdown in loans to purchers, said the pattern had changed in July.